Global Infrastructure Modernization And Energy Transition Will Expand Steel Markets

Key Takeaways

• Vertical integration, raw material optimization, and energy efficiency initiatives could drive margins and earnings well beyond market expectations.
  
• Shifts in export dynamics and new steel demand trends position Erdemir for increased revenue resilience and premium pricing opportunities.
  
• Heavy reliance on imported raw materials, slow decarbonization, local market dependence, and global oversupply expose the company to margin pressures and competitive risks.

Catalysts

Produces and sells iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed products, coke, and by-products in Turkey and internationally.

• Analysts broadly agree that new blast furnace and coke battery investments will lift EBITDA per ton and margins, but this likely understates the upside, as Erdemir's increased vertical integration and ongoing raw material mix optimization may yield even greater cost savings and margin expansion than currently forecast, with the potential to lift net margins substantially above consensus expectations.
  
• The analyst consensus sees energy efficiency investments supporting EBITDA per ton, but Erdemir's accelerated integration of renewable energy sources, such as self-generated solar power, could drastically reduce energy expenses and volatility, driving sustained double-digit improvement in long-term earnings power beyond current models.
  
• The removal of U.S. steel tariff exemptions for competitors positions Erdemir to capture significant new export market share in North America at superior price levels, which could accelerate top-line growth and meaningfully increase export revenue well above current projections.
  
• Structural trends in global infrastructure renewal and the proliferation of energy transition technologies are likely to drive multi-year demand for value-added and specialty steel products, allowing Erdemir to capture premium pricing and reinforce revenue resilience, especially as Turkish producers are favored by logistical and quota advantages in key markets like the EU.
  
• If the ongoing gold mine reserve studies confirm substantial mineral resources, Erdemir could unlock a wholly unrecognized earnings stream, with even moderate success in this venture potentially creating meaningful upside to consolidated EBITDA and net profit, which is not currently factored into market valuations.

Eregli Demir ve Çelik Fabrikalari T.A.S Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Eregli Demir ve Çelik Fabrikalari T.A.S compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Eregli Demir ve Çelik Fabrikalari T.A.S's revenue will grow by 15.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.0% today to 10.8% in 3 years time.
• The bullish analysts expect earnings to reach TRY 34.9 billion (and earnings per share of TRY 4.93) by about July 2028, up from TRY 8.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the TR Metals and Mining industry at 22.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 29.79%, as per the Simply Wall St company report.

Eregli Demir ve Çelik Fabrikalari T.A.S Future Earnings Per Share Growth

Risks

• Eregli Demir ve Çelik Fabrikalari T.A.S. remains highly exposed to global commodity price volatility and currency fluctuations due to its heavy reliance on imported raw materials like iron ore and coal, increasing the risk that rising input costs may compress net margins in future periods.
  
• Intensifying global focus on decarbonization and tightening environmental regulations, particularly impending measures like the EU Carbon Border Adjustment Mechanism, will require significant capital investments in green steelmaking technologies, potentially increasing capital expenditures and eroding free cash flow and profit margins.
  
• The company's high concentration of sales within the Turkish domestic market, with 72 percent of total revenue generated domestically, means it is exposed to local economic slowdowns which could amplify earnings volatility and constrain long-term revenue growth.
  
• Persistent global steel overcapacity driven by price competition from Chinese producers, along with sustained low hot-rolled coil export prices, will likely place ongoing pressure on steel prices and reduce average realized selling prices, negatively affecting revenue and profitability.
  
• Eregli's relatively slow transition to advanced, lower-emission steelmaking technologies, despite the planned $3.2 billion transformation investment toward 2030, could leave it at a structural disadvantage versus global competitors shifting more rapidly to electric arc furnace or recycled steel, risking market share loss and stagnant revenue.

Valuation

• The assumed bullish price target for Eregli Demir ve Çelik Fabrikalari T.A.S is TRY36.75, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Eregli Demir ve Çelik Fabrikalari T.A.S's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY36.75, and the most bearish reporting a price target of just TRY16.09.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be TRY322.7 billion, earnings will come to TRY34.9 billion, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 29.8%.
• Given the current share price of TRY27.04, the bullish analyst price target of TRY36.75 is 26.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.